Retail investors in America are abandoning the markets in record numbers, with the bond market particularly hard hit, according to the latest troubling data from Wall Street. More than $39bn has been withdrawn from the US bond markets by ordinary investors in the past seven weeks, the largest outflow of funds since records began. Equity funds and money market funds are also experiencing the biggest outflows in years.

The stampede out of bonds is a further sign that government measures to fix the credit markets are not working and that the crippling financial downturn still has many months to run. In normal times, retail investors invest about $32bn annually in the bond market, which means more than a year's worth of investments has been taken out of the market in less than two months.

Brad Hintz, Wall Street analyst at Sanford Bernstein in New York, said: 'These outflows highlight the continued troubles facing the credit markets. For a sustainable recovery to begin, we need to see these outflows stop and for inflows to resume.'

It is not known how long the outflows will continue, but some top bankers are pointing to the 1987 crash as an indicator. Michael Blumstein, former head of equity research at Morgan Stanley, said that in 1987 it took four years for retail investors to return to the bond market. 'When the financial markets rattle "Mom and Dad Average American", these investors pick up their cash and place it in their mattresses - and won't come back until the pain of their losses is long forgotten,' Hintz said.